@WestonM
1) Simply put, YES. If we are giving up an asset, this means it is no longer on our books and therefore the asset (normal debit balance) must me credited at the original cost to remove it. In addition, we must also debit accumulated depreciation for the asset since we, again, no longer own this asset. This applies to both transactions that have or lack commercial substance.
2) As with my explanation in #1, we must first credit the asset given up for the book amount (original cost) and debit the accumulated depreciation; THIS IS A MUST. Then to determine the book value of the asset being acquired we use the following rules:
If there is a loss (ie: we give Item A with a book value of $20 for item B with a FAIR value of $18. or we give item C with a book value of $10 and $2 in cash for item D with a FAIR value of $11) we must recognize the loss immediately in our I/S and place the asset on our books at fair value.
If we have a GAIN, we then must consider the following:
If no boot (cash) is received, we do no recognize any gain and the new asset will go on our books for the book value of the asset given up, NOT FAIR VALUE.
If boot is received, but is less than 25% of the total consideration (ie: item F with a FAIR value of $9 and cash of $1 = 10%) then we recognize a gain proportionate to the boot received. For example, we we have item G with book value of $8,000 traded for item H with a FAIR value of $9,000 plus cash of $1,000, then we would have a gain of $2,000; however we only recognize a gain of 10% or $200. Gains are always a credit so make your journal entries and the squeeze account will be the new items book value.
If boot is more than 25%, then it is considered a monetary transaction and all gains/losses are recognized by both parties at that time.
Hope this helps!
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